Egypt current account hits surplus buoyed by Gulf aid Pound down at forex sale for second time since Morsi fall

CAIRO, Dec 19, (RTRS): Egypt’s current account recorded a surplus in the first quarter of the financial year, boosted by billions of dollars in aid from Gulf Arab states after the army ousted Islamist President Mohamed Morsi in July. The current account ran a surplus of $757 million between July and September, driven by a massive increase in official transfers, according to a balance of payments statement posted on the central bank’s website on Thursday. Saudi Arabia, the United Arab Emirates and Kuwait pledged over $12 billion in loans and donations, including petroleum products, after Morsi was forced out of office following mass protests against him. Egypt recorded a current account deficit of $1.26 billion in the same period last year.

“Egypt did not usually have a surplus. In the current circumstances, it was definitely the Gulf money that made this shift,” said Mohamed Abou Basha, Cairo-based economist at EFG-Hermes. Official transfers, including cash and commodities, shot up to $4.27 billion in the first quarter of the financial year, which started on July 1, from $40 million a year earlier, the central bank said. Tourism, which had been gradually improving from a collapse following Egypt’s 2011 popular uprising, took another blow in the first quarter as many countries imposed travel bans on Egypt amid violent turmoil after Morsi’s removal. Tourism receipts tumbled to $931.1 million down from $2.64 billion a year earlier.

AverageThe number of tourist nights spent in Egypt fell by 57 percent to about 15 million and the average visitor’s spending also dropped, the central bank said in the statement accompanying the first quarter data. Hundreds were killed in August when security forces dispersed pro-Morsi protest camps and deadly attacks on policemen and soldiers in the Sinai peninsula have become almost a daily occurrence since July. Oil exports for the first quarter rose by $347 million to $2.79 billion. Foreign direct investment in Egypt rose to $1.246 billion between July and September, up from $1.164 billion last year. The central bank had previously put the figure for FDI in the first quarter of 2012 at $108 million, but said data from the petroleum sector had prompted an adjustment.

Egypt has burned through at least $20 billion - roughly half its reserves - supporting the currency since the 2011 uprising that overthrew autocrat Hosni Mubarak, which cut sharply into tourism revenues and foreign investment. Foreign reserves stood at $17.8 billion at the end of November. Finance minister Ahmed Galal said on Monday the government will finance an economic stimulus package of around 30 billion Egyptian pounds ($4.35 billion) using aid from Gulf Arab states and savings. Portfolio investment in Egypt reversed to a net inflow of $1.27 billion in the first quarter, from an outflow last year of $327 million, which the central bank said was mainly due to the issuance of government bonds at a value of $1 billion.

Net liabilities of the central bank increased to $3 billion from $503 million last year, mainly because of deposits transferred “from some Arab countries”, the statement said. On Sept 29, central bank governor Hisham Ramez said that Egypt had received $7 billion out of the $12 billion in aid pledged by Gulf Arab countries. The Egyptian pound weakened for the second time in two days at a foreign exchange auction on Thursday, the central bank said, ending a period of gradual strengthening in the official market while it continues to trade weaker on the black market.

The pound weakened on Wednesday for the first time at a central bank foreign currency auction since July 3, when the army deposed Islamist President Mohamed Morsi following mass protests against his rule. The central bank sold $37.2 million to banks at Thursday’s auction, with a cutoff price of 6.8972 pounds to the dollar, weaker than the 6.8869 at the previous sale on Wednesday. It had offered up to $40 million. Two market participants said the dollar was offered for 7.42 pounds in the black market on Thursday. The average midpoint of three black market rates on Wednesday cited by market participants was 7.40 pounds to the dollar.

The central bank introduced dollar currency sales a year ago to help counter a run on the pound. It has burned through at least $20 billion - or roughly half its reserves - supporting the currency since Egypt’s 2011 revolution, which cut into tourism revenues and foreign investment. The central bank has limited Egyptians from transferring more than a cumulative $100,000 out of the country since the 2011 uprising unless they can demonstrate a pressing need for the funds. Many wealthier Egyptians have reached their limit and are no longer able to send funds abroad.

In January, this limit will be raised by another $100,000, Central Bank governor Hisham Ramez said this month. Depositors at banks can only withdraw a maximum of $10,000 in foreign currency per day under central bank rules, but in practice many banks restrict such withdrawals to much less and demand documents to show why the client needs the funds.